2025 EA PT 1 Test Prep

3 Tests for Dependency

1. Dependent taxpayer test

2. Joint return test

3. Citizenship or residency test

Dependent Taxpayer Test

A person who can be claimed as a dependent by another taxpayer may not claim anyone else on their return.

• Dependents can’t claim dependents

Joint Return Test

If a married person files a joint return, that individual normally can’t be claimed as a dependent by another taxpayer

• Rare exception: if the joint return is filed by the dependent only to claim a refund & neither spouse would have a tax liability if they filed separate returns

Citizenship or Residency Test

Dependent must be a citizen or resident of US, Canada, or Mexico

• Exceptions for foreign born adopted children

Qualifying Child and Qualifying Relative

Must meet the 3 dependency tests first

5 Tests for Qualifying Child

1. Relationship test

2. Age test

3. Residency test

4. Support test

5. Tiebreaker test

Relationship Test

QC must be related the taxpayer by blood, marriage, or adoption

• relationships through marriage don’t end in divorce

Age Test

QC must be under the age of 19 at the end of the tax year or

• under the age of 24 at the end of the tax year and a FT student or

• permanently and totally disabled at any time during the year regardless of age

• Child claimed as a dependent must be younger than the taxpayer claiming them, unless the dependent is disabled

  • for taxpayers filing jointly, the child must be younger than at least one of the spouses on the return

Residency Test

QC must live with the taxpayer for more than half the year (does not need to be a traditional home)

• temporary absences include school, illness, juvie, etc

Support Test

QC can’t provide more than ½ their own support

• SS benefits could as support provided by the child, but not state benefits

• FT student does not take scholarships into account

Tie-breaker Test

If more than one person can claim someone as a QC, these are the tiebreakers:

• Child’s parents if they file a joint return

• Parent, if one of the taxpayers is the child’s parent

• Parent with whom the child lived the longest during the year

• Parent with the highest AGI, if the child lived which each parent for the same amount of time

• Taxpayer with the highest AGI, if neither of the parents can claim the child

• Taxpayer with a higher AGI than either of the child’s parents who can also claim the child, but do not

If the parents agree, then there is no need for a tiebreaker test

4 Tests for Qualifying Relative

1. Not a qualifying child test - Can’t be a dependent on another return

2. Member of household or relationship test - must live with taxpayer for the entire year or be related

3. Gross income test - can’t earn more than $5,200 (not a requirement for QC, only QR)

4. Support test -taxpayer must provide more than ½ of the dependent’s total support during the year

Kiddie Tax

Unearned income above $2,700 is subject to the kiddie tax and taxed at parents’ marginal income rate

Multiple Support Agreement

A taxpayer must provide more than 10% of support in order to claim a dependent.

• This only applies to claiming a QR

HCFSA contribution limit

$3,300

• both EE and ER must not exceed this limit

FSA Rules

• Use it or lose it

  • 2 ½ month grace period after year-end to claim qualifying expenses against prior plan balance

  • Usually funds forfeited back to the ER after that

DCFSA contribution limit

single/mfj: $5k

mfs: $2,500

DCFSA Rules

Can be used for eligible daycare services, before/after school programs, and adult day care for disabled dependents

Standard Deduction - MFJ

$31,500

Standard Deduction - Single/MFS

$15,750

Standard Deduction - HOH

$23,625

Qualified Tips (2025-2028)

Deduction up to $25k, MAGI phaseout at $150k ($300k for MFJ)

Qualified OT (2025-2028)

Deduction up to $12,500 ($25k for MFJ), MAGI phaseout at $150k ($300k for MFJ)

MAGI (Modified Adjusted Gross Income)

Take your AGI, then add back certain deductions (Student loan interest, IRA contributions, taxable SS payments, tuition and fees, ½ SE tax, foreign income and housing expenses, interest from EE savings bonds used for education, passive income or loss, rental expenses, adoption expenses)

Used for: Roth IRA Contributions, Premium Tax Credit, Student Loan Interest Deduction

AGI (Adjusted Gross Income)

Gross Income (Wages, interest, dividends, business income, unemployment compensation, capital gains/loss, retirement plan distributions) and subtract “Above-the-line” Deductions reported on Schedule 1 (Educator expenses, IRA contributions, student loan interest, HSA deduction, ½ SE tax, SE health insurance, Alimony paid (Agreements prior to 2019))

Qualified Passenger Vehicle Loan Interest Deduction

Up to $10k of interest paid on vehicles that are

• New

• 100% personal use

• Assembled in the US

• Phaseout for MAGI over $100k ($200k MFJ)

Enhanced Deduction for Seniors (Temporary)

Additional $6k deduction per eligible individual 65+ for 2025-2028

• MAGI Phaseout over $75k ($150k MFJ)

Trump Accounts

Children born after 12/31/24 and before 1/1/29 will receive a one-time $1k contribution

• Parents, guardians, and employers may contribute up to $5k annually (indexed for inflation

• Can’t be withdrawn before the child turns 18

Qualified Disaster Loss

Loss is deductible without having to itemize

• Not subject to the 10% AGI limitation

• Per-casualty floor is increased from $100 to $500

Higher Catch-up Limit

Ages 60-63 at end of tax year - for 401(k), 403(b), 457(b) plans = $11,250

Penalty Withdrawal Exceptions (SECURE Act 2.0)

Emergency withdrawals - up to $1k/year for unforeseeable or immediate financial needs

Domestic Abuse Victims - The lesser of $10k or 50% of the account balance

2025 Tax Rates

10%, 12%, 22%, 24%, 32%, 35%, and 37%

• NRs are taxed at a flat 30% rate unless specified by treaty

Roth and Traditional IRA Limits

$7k (Additional catch-up of $1k for age 50+)

Kiddie Tax

Under 18 and certain dependents under 24.

• Unearned income threshold is $2,700

Nanny Tax - Household Employees

2025 threshold = $2,800

• Household employers are obligated to withhold and pay FICA

$1k/EE or more in a calendar quarter → ER is required to pay FUTA

OASDI maximum wage base (2025)

$176,100

EE & ER FICA

6.2% Social Security + 1.45% Medicare

• Self-employment tax = 15.3%

Additional Medicare Tax

.9% on earned income exceeding:

• MFJ: $250k

• MFS: $125k

• Single/HOH/QSS: $200k

Gain on sale of collectibles

Artwork, antiques, stamps, etc → Max 28%

Unrecaptured 1250 gain

Applies to depreciable real estate property → Max 25%

NIIT

3.8% tax applies to individuals, estates, and trusts with net investment income above the following thresholds:

• MFJ/QSS: $250k

• Single/HOH: $200k

• MFS: $125k

• Estates/Trusts: $15,650

2025 Bonus Depreciation

100% bonus depreciation made permanent for qualified property acquired and placed in service on or after 1/19/25

• Property acquired before 1/19/25 is subject to 40% bonus depreciation in 2025

2025 Section 179 Deduction

Maximum expense if $2.5m

• Limit is reduced by the amount by which the cost of Section 179 property placed in service during the tax year exceeds $4m

• Investment phaseout threshold ends at $6.5m

QBI Deduction Limits

MFJ: $394,600 - $494,600

All other filing statuses: $197,300 - $247,300

W-4V

Used to withhold from Social Security payments

• Retirees with side gigs

Backup Withholding

24% for citizens and legal residents

• not as common anymore

Amount of time a taxpayer has to claim a loss from worthless securities

7 years

Deadline to file for NRs with income not subject to US withholding

June 15

2025 Standard Mileage Rate

Business use: 70 cents/mile

Medical/moving: 21 cents/mile

Charitable: 14 cents/mile

Foreign Earned Income Exclusion

$130k/person

AMT Exemption

Single/HOH: $88,100

MFS/QSS: $137,000

MFS: $68,500

Estates/Trusts: $30,700

Estate and Trust Exemption Amounts

Estates: $600

Simple trusts: $300

Complex trusts: $100

Qualified disability trusts: $5,100

2025 EITC Changes

Investment income limit: $11,950

Taxpayers who file MFS may qualify in limited circumstances

Child and Dependent Care Credit (CDCTC)

Percentage randing between 20-30% of up to $3k in qualifying expenses (1 dependent)

• $6k for 2 dependents

AOTC

up to $1,700 is refundable

CTC Phaseout

$400k (MFJ)

$200k for all other filing statuses

Premium Tax Credit (PTC)

repayment caps range from $375 - $3,250 depending on income and filing status

• repayment caps are repealed in 2026

Saver’s Credit

Between 10-50% of eligible contributions.

• max credit - $1k

Saver’s Credit Max MAGI

MAGI must not exceed $39,500 - Single/MFS/QSS

$59,250 - HOH

$79k - MFJ

Energy Efficient Home Improvement Credit

Max credit of $3,200

• Insulation material, natural gas, etc

• Nonrefundable and no carry forward

• PIN requirement - 4-digit Qualified Manufacturer code

Form 8863

Used to claim AOTC and LLC

Max EITC amounts

No qualifying children: $649

1 qualifying child: $4,328

2 qualifying children: $7,152

3 or more qualifying children: $8,046

Adoption Credit

Max credit is $17,280

• AGI Phaseout → $259,190 - $299,190 (All filers)

• Refundable portion: up to $5k, nonrefundable amount eligible for 5 yr carryforward

ODC max credit amount

$500/dependent

• no refundable portion

• New for 2025 - taxpayer and spouse must have valid SSN or ITIN on or before the due date of the return

AOTC Max Amount

Up to $2,500/student

• Refundable portion: up to 40% of the credit (up to $1,000) can be refundable.

Lifetime Learning Credit

Up to $2,000 per tax return

• Available for all years of post-secondary education/courses to improve job skills

• No limit on number of years the credit can be claimed

Non-Qualified Expenses for Education Credits

Room and board, transportation, insurance, medical expenses, and student health fees (even if mandatory)

Coverdell ESA Max

$2k/beneficiary

Educational Savings Bond Expense Exclusion

Allows taxpayers to exclude interest income upon redeeming eligible savings bonds when the bond owner pays qualified higher education expenses at an eligible institution

• Single/HOH: MAGI phaseout at $99,500 - $114,500.

• MFJ: MAGI phaseout at $149,250 - $179,250

• MFS are not eligible

Educator Expense Deduction

$300 adjustment to income ($600 if both spouses are teachers filing jointly)

Student Loan Interest Deduction Phaseout

Single: $85k - $100k

MFJ: $170k - $200k

• Max deduction is $2,500

• MFS can’t take the deduction

Student Loan Forgiveness

Exclusion from gross income is available if granted after 2020 and before 2026 (under the American Rescue Plan Act)

Student Loan Forgiveness - ER Payments

ER may contribute up to $5,250 annually

• Excluded from income

• Cap also includes other educational assistance

2025 Increase in Penalty for Failure to File

More than 60 days late

• shall not be less than the lesser of 1) $525 or 2) 100% of the tax due on the return

Qualified Charitable Distribution Max

$108k

• Applies to each spouse if filing jointly

Required Minimum Distribution

First RMD for someone who turns 73 in 2025 is due by 4/1/26

Excess Business Loss Limit

MFJ: $626k

All other filing statuses: $313k

De Minimis Customs Entry Privilege - Revoked

Effective 8/29/25

• Taxpayers importing goods may be subject to duties and taxes regardless of value

• $5 for first violation and $10k for second

Valid SSN

Required to claim CTC, Senior Deduction, Qualified Tips, and Qualified OT

90% Rule

Pay at least 90% of the tax owed for the current year

100% Rule

Pay 100% of the tax owed in the previous year

$1,000 Rule

Owe less than $1k in tax after subtracting withholdings and credits

No PY Tax Liability

If a taxpayer had no taxes owed in the previous year, they are typically not subject to the underpayment penalty for the current year, regardless of the amount due

Earned Income

All taxable income earned through work, such as wages, salaries, tips, and other forms of employee compensation. This category also includes self-employment earnings from business or farm ownership

Unearned Income

interest income, dividends, capital gains, retirement income, gambling winnings, and prizes

If a taxpayer omits >25% of their income…

They must retain their tax records for 6 years

Innocent Spouse Relief

When a joint return has understated tax liability due to “erroneous items” attributable to a taxpayer’s spouse or former spouse. Must establish that they did not know the understated liability when they signed the return

• Must request relief within 2 years after the date on which the IRS begins collection activity

Separation of Liability Relief

Taxpayer must either no longer be married or legally separated from their spouse, be widowed, or have lived apart for at least one year to qualify.

• Only applies to amounts owed that have not been paid.

• Will not generate a refund

Equitable Relief

IRS will review the case and determine whether holding the taxpayer liable for the relief would be fair

• Must be granted for an underpaid tax, meaning it was properly reported but not paid

Injured Spouse Claim

Must meet the following:

• Have filed a joint return

• Have paid federal income tax or claimed a refundable tax credit

• All or part of the refund was, or is expected to be, applied to the other spouse’s past financial obligations

• Not be responsible for the debt

Collection Statute Expiration Date (CSED)

10 years from the date tax is assessed (Not date of filing)

Form 843

Filed along with form 1040NR to request a refund if Social Security and Medicare taxes were withheld in error for foreign student or exchange visitor on an F-1, J-1, M-1, or Q visa

“Considered Unmarried” for HOH Status

Taxpayer must not file a joint return

Must not pay more than half the cost of a home, but home must be the main residence of a child for more than half the year

Not live with a spouse in the home during the last six months of the tax year

Be able to claim an exemption for the child

Green Card Test

A lawful immigrant who has been issued a green card is a U.S. resident by default

• Residency start date is the 1st day during the calendar year on which the individual is physically present in the US as a lawful permanent resident, but they may opt out of the calendar year treatment for tax purposes

Guaranteed Installment Agreement

Applies when taxpayers owe $10k or less in tax. Can’t be turned down if all of the following apply:

• The taxpayer (and spouse, if married) has timely filed all income tax returns and paid all tax due during the past 5 years

• The IRS has determined the taxpayer can’t pay the tax owed in full when it is due

• Taxpayer agrees to pay the full amount he owes within 3 years

• Taxpayer has not entered into an installment agreement with the IRS in the prior 5 years

CP523 Notice

Issued when a taxpayer has an installment agreement but failed to make a payment.

• informs the taxpayer that they have defaulted on their agreement and gives them a 30-day period to address the issue

Form 1127

Extension of Time for Payment due to Hardship

• Taxes covered: income, self-employment, and gift

• Taxpayer must prove that there will be substantial financial loss if they pay the tax on the due date

Substantial Presence Test

An alien without a green card is considered a US resident for tax purposes only if they meet this test for the calendar year:

• Must be physically present in the US for at least 31 days and

• 183 days during the 3-year period (including the current year and the 2 years immediately preceding the current year)

International students are exempt from this test

Reciprocal Provisions

Treaty benefits generally apply to both countries involved in the treaty

Saving Clause

Prevents US citizens and US residents from using treaty provisions to avoid taxes on US source income